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UTI Bank: Lower provisions fuel growth - Views on News from Equitymaster
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  • Jul 10, 2002

    UTI Bank: Lower provisions fuel growth

    UTI Bank reported splendid performance for the quarter ended June 2002 with over 40% rise in profits and 26% growth in interest income. Higher growth in earnings was achieved due to 95% decline in provisions for non-performing assets.

    (Rs m) 1QFY02 1QFY03 Change
    Income from operations 2,664 3,344 25.5%
    Other Income 1,009 599 -40.7%
    Interest expense 2,388 2,746 15.0%
    Net interest income 276 599 116.8%
    Other expenses 426 599 40.6%
    Operating Profit (150) (0) -99.7%
    Operating Profit Margin (%) -5.6% 0.0%  
    Provisions and contingencies 419 21 -95.0%
    Profit before Tax 440 577 31.1%
    Tax 187 218 16.6%
    Profit after Tax/(Loss) 254 360 41.8%
    Net profit margin (%) 9.5% 10.8%  
    No. of Shares (m) 131.9 191.9  
    Diluted Earnings per share* 5.3 7.5  
    P/E Ratio   5.7  

    The bank's core interest income recorded strong growth of 28% during the quarter due to 58% rise in loans given by the bank. The bank's aggressive retail foray fueled this growth. Retail banking accounted for 12% of the bank's pre-tax profits. On the liability side too, the bank managed to achieve 41% growth in total deposits. Low cost funds however, account for a marginal 14% of total deposits raised by the bank.

    Interest income break-up
    (Rs m) 1QFY02 1QFY03 Change
    Interest on advances 1,257 1,607 27.8%
    Income on investments 1,303 1,597 22.5%
    Interest on balance with RBI 81 126 55.6%
    Others 23 15 -34.2%
    Total 2,664 3,344 25.5%

    While the bank managed to report over 100% growth in net interest income, lower other income, trimmed rise in pre-tax profits. During the quarter the bank's trading income (part of other income) declined by 68% to Rs 251 m, which resulted in overall 41% fall in fee-based income. The contribution of other income to total income also came down to 15% from 28% in 1QFY01. Consequently, UTI Bank's cost to income ratio jumped to 55% from 33% in the comparable previous quarter.

    Recoveries effected in NPAs in the June quarter, brought down the bank's provision figure substantially from Rs 419 m in 1QFY01 to Rs 21 m in the current quarter. Through aggressive provisions in FY02, the bank increased its NPA coverage ratio to 34% (from 20%in FY01) and its net NPA ratio came down to 3.3%. UTI Bank's gross NPAs however, increased by 7% in FY02 on the back of its high exposure to corporate clients. Slowdown in the economic activity seems to have impacted its asset quality. If the bank fails to keep check on its assets in the current fiscal then provision figure could increase towards the year end.

    At the current market price of Rs 43, UTI Bank is trading at a P/E of 6x 1QFY03 annualised earnings and adjusted price to book value ratio of 1.8x. The bank's aggressive expansion has reduced its capital adequacy ratio to 9.3% as on June 2002 from 10.7% in March 2002. Reduction in capital could hinder the bank's future growth plan unless it increases its capital base by diluting equity or through borrowings.



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